Most of the state's 60,000 employees will lose seniority and cost-of-living pay raises next year and will be asked to put in longer work weeks and contribute more for medical insurance under a plan being drafted by Gov. William Donald Schaefer.

The actions could save almost $300 million and are part of a cost-cutting effort by state officials who are struggling to balance an $11 billion budget in the face of rapidly declining tax revenues.

Some measures -- such as canceling cost-of-living raises -- have been used by past administrations to save money. But, if the Schaefer plan is approved, it may be the first time state employees will not receive scheduled "step" increases that automatically follow satisfactory performance reviews in each pay grade during the first six years of employment.

A union leader warned that the various cutbacks together may hit state employees so hard that the best and brightest ones leave for jobs in the private sector.

"The state will be the employer of last resort," said Joel Dan Lehman, president of the Maryland Classified Employees Association, which represents more than 20,000 state workers.

"Whoa!" said MCEA executive director Lance Cornine, when informed of the proposed cut in step raises. "If they did that, it would be devastating to the employee."

If the plan is adopted, it would mean that among the few state employees who would get raises this year would be the governor, Cabinet secretaries, legislators and other top officials. Their pay is based on a once-every-four-years review that was completed last year, before the budget crunch.

Cornine said the governor and other top state officials are not setting the right example by accepting large pay raises. "If times are tight, let's all share the pain," he said.

Paul Schurick, a spokesman for the governor, said Schaefer has no intention of turning down his pay raise, as some have suggested. His annual salary will rise 41 percent from $85,000 to $120,000 after he is sworn in for a second term Jan. 16.

"State employees have gotten raises in each of the past four years," Schurick said, adding that the governor and other top state officials have not.

The budget measures were sketched out in a briefing yesterday for Republican lawmakers by Charles L. Benton, secretary of the budget and fiscal planning department. "These are difficult times," Benton said.

Other elements of the budget-balancing plan include: abolishing half of the state's 3,100 vacant job openings; diverting from the transportation trust fund $76.6 million in corporate income tax revenues; and raising $2 million by charging fees to parolees and probationers to defray the costs of their supervision; as well as having agencies make program and other cuts.

The full details of the budget are still being worked out and will be announced Feb. 1. William Ratchford, director of the legislator's fiscal services department, told the Republican lawmakers that the governor's revenue projections may still be about $75 million too optimistic.

Separately, Schaefer yesterday signed an executive order increasing from 35.5 to 40 the minimum number of hours in the standard workweek for state workers. The order, effective Feb. 1, will affect about 40,000 workers, or two-thirds of the state's work force. Unaffected will be employees of state colleges and those working on contract.

Schaefer estimates the change will produce savings equal to 5,000 full-time positions, or about $183 million.

Skipping cost-of-living increases next year would save about $80 million, if the raises equaled the 4 percent given this year, said James B. Rowland, assistant to Benton.

Canceling scheduled "step" or "increment" raises will save $25 million more, Benton said. Those increases were expected to affect 29,000 workers in pay grades one through 22. About 59,000 rank-and-file employees and mid-level managers work on a system of annual pay raises that tops off at six years seniority. About 30,000 workers have already reached the sixth step and would not be affected, Catherine K. Austin, assistant secretary for administration in the state's personnel department.

Cornine, the MCEA director, said the average step increase was roughly 3 percent.

Several hundred top executives work on a seven-step system and would also see their step and cost-of-living increases canceled if that was done to lower-ranking employees, said Austin.

"Usually one follows the other. It would be a safe assumption that no state employees will get COLAs," Austin said. The last time cost-of-living raises were canceled was 1983, she said. She said seniority raises probably have not been skipped before.

State employees will also be asked to pay 21 percent of their health insurance premiums, up from the current 18 percent. This will save the state $10 million a year and will cost the average worker about $2 a week, state officials said.

In December, Schaefer had threatened to lay off state employees to make up for budget shortfalls but later backed away from that plan. At the time, MCEA proposed a longer workweek for state employees as an alternative to massive layoffs. "We will take the 40-hour workweek if that means keeping our jobs," Lehman said last night.